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International Scientific Conference

CONTEMPORARY ISSUES IN BUSINESS, MANAGEMENT AND ECONOMICS ENGINEERING’2019


eISSN 2538-8711
9–10 May 2019, Vilnius, Lithuania ISBN 978-609-476-161-4 / eISBN 978-609-476-162-1
Vilnius Gediminas Technical University Article ID: cibmee.2019.073

https://doi.org/10.3846/cibmee.2019.073

DIGITAL TRANSFORMATION: CONCEPTUAL FRAMEWORK

*
Natalja VERINA, Jelena TITKO
Ekonomikas un kulturas augstskola, Lomonosova Str. 1/5, LV1019, Riga, Latvia
*
E-mail: [email protected]

Abstract. Purpose – the main goal of the current research was to provide a deep understanding of the concept of digital
transformation, specifying its key elements/components/categories.
Research methodology – an analysis of the textual information was performed, applying various techniques in the frame-
work of the content analysis. Information database included 30 definitions of the term “digital transformation” and the
related terms proposed by academicians and organizations.
Findings – the analysis of the text segments of the investigated concept yielded three categories of digital transformation
in business; 1) technologies, 2) processes and management, 3) people. Based on the research results, the conceptual
model of digital transformation was created.
Research limitations – the research was limited by the number of the analyzed definitions, as well as by the variety of
methods applied.
Practical implications – the research instrument for a survey among business sector representatives can be developed
using the findings of the given study, in particular, for structuring the questionnaire’s blocks.
Originality/Value – the current research provides a platform for further empirical investigation of the level of a com-
pany’s digital transformation.
Keywords: digital transformation, digitalization, concept, content analysis.
JEL Classification: M10, O33.
Conference topic: Digitalization of Business Processes: Trends, Challenges, Solutions.

Introduction
Digital transformation (DT) and its components, drivers and barriers for DT in business, its strategies and its impact
on companies operating efficiency – all these topics are frequently debated during the last two decades. It is one of the
policy areas of the European Commission and the Organisation for Economic Co-operation and Development.
The current research is devoted to the investigation of the concept of digital transformation in business. Consid-
ering different digital transformation perceptions, there is quite a wide range of studies focusing on different questions
related to the digital transformation barriers, strategies, elements, etc. It predetermines different approaches to the
definition of the concept itself, even within the business field. The main goal was to provide a deep understanding of
the concept of digital transformation, specifying its key elements/components/categories.
The general research questions are:
1. What are the core elements of digital transformation?
2. What are the factors driving the process of digital transformation in business?
To achieve the research goal, the authors analysed concept-related text segments and definitions of the term “dig-
ital transformation” proposed by individual researchers, governmental authorities and business experts, extracted from
the scientific databases Google Scholar and EBSCO, reports and surveys by the European Commission, OECD, World
Economic Forum and other authorities, as well as papers published by non-governmental organizations.
The analysis was performed, applying the procedure of the frequency analysis within the content analysis method
and evaluating the inter-rater reliability with Cohen’s Kappa coefficient. Besides, the expert survey was used to in-
crease the reliability of the previously received results, and to evaluate the factors affecting the success of digital
transformation processes in business. Hamlet II and SPSS software were used for data processing.

© 2019 Authors. Published by VGTU Press. This is an open-access article distributed under the terms of the Creative Commons
Attribution (http://creativecommons.org/licenses/by/4.0/) License, which permits unrestricted use, distribution, and reproduction in
any medium, provided the original author and source are credited.
Verina, N.; Titko, J. 2019. Digital transformation: conceptual framework

The current research contributes to the body of knowledge related to digital transformation processes and provides
a platform to further studies in this area. It is a starting point for research series in the field of business digital trans-
formation that aims, in particular, to investigate the issues regarding staff resistance to digital transformation processes.
One of the areas for future studies will be a higher education sector.

1. The concept of digital transformation


Nowadays, digital transformation is a buzzword in an academic and business environment. Business, education, bank-
ing, government, manufacturing – almost every industry is being “digitally transformed” in the period of the fourth
industrial revolution.
Elements of digital transformation, drivers and barriers, value creation through digital transformation – these and
other related topics are frequently discussed in an academic environment last 20–25 years (Shallmo, Williams, &
Boardman, 2017; Matt, Hess & Benlian, 2015; Ismail, Khater, & Zaki, 2017). Call for digital transformation in Google
Scholar data basis yielded three million results. The request for the key words “digital transformation” in Web of
Science and SCOPUS bases also resulted in plenty of scientific papers, the amount of which is increasing every year
(see Figure 1).

Figure 1. Number of publications devoted to Digital transformation: results from


Web of Science and SCOPUS scientific databases 1995–2018 (source: authors’ compilation)

The European Commission (EU) also prioritizes digital transformation of business and society. Digital Transfor-
mation Monitor and Digital Transformation Scoreboard are among EU initiatives aimed to measure progress on digital
transformation in EU countries (European Commission, 2019).
In 2017, the Organisation of Economic Cooperation and Development (OECD) launched a new global project –
“Going Digital: Making the Transformation Work for Growth and Well-being”. Its goal is “to help policymakers better
understand the digital transformation that is taking place and create a policy environment that enables their economies
and societies to prosper in a world that is increasingly digital and data-driven” (OECD, 2018).
Why so much attention is paid to digital transformation? First, digitalization is an integral part of the
overwhelming development of society, economics and business. Digitalization and globalization – or vice versa – these
processes determine our existence nowadays. According to the European Commission forecasts, a “transformative
industrial and technological revolution” will be one of the key global trends to 2030. “All aspects of society – such as
politics, governance, education, science, lifestyles, collective intelligence networks, the setting-up of open systems,
and health, including the transformation of the human genome – will be transformed by technological breakthroughs”
(ESPAS, 2015).
There are plenty of definitions provided by academicians, government authorities and business experts. Some of
them are summarized in Table 1.
The digital transformation of a company requires a fundamental organizational change. Based on experts from
Bostom Consulting Group, “a digital transformation requires instilling a culture that supports the change while ena-
bling the company’s overarching strategy” (Hemerling, Kilmann, Danoesastro, Liza Stutts, & Ahern, 2018). The sin-
gular focus should on customers and their needs (Schwertner, 2017; Dahlstrom, Erikson, Khanna, & Meffert, 2017).
Citing Bloomberg (2018), “digitization and digitalization are essentially about technology, but the digital transformation is
not. Digital transformation is about the customer”. The processes of the organizational change and incorporating of a
digital culture should be initiated and supported by executives (Gillin, 2016; Schwertner, 2017; Hemerling et al., 2018).
Human element (within and outside the organization being digitally transformed or initiating this process) is not
very much focused. However, some researchers point out that successful digital transformation requires “motivated
employee involvement” (Schwertner, 2017) and that the human factor is more important than the technology itself

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Verina, N.; Titko, J. 2019. Digital transformation: conceptual framework

(Del Rowe, 2017). People-driven approach to DT is emphasizing also in OECD’s (2018) Ministerial report on Inclusive
Growth: “If we lose sight of the individual and the need for all individuals to be engaged and benefit from the digital
transformation, the transformation cannot be positive and inclusive”.

Table 1. Definitions of the term “digital transformation” (source: authors’ compilation)

Source Definition
“Digital transformation is characterized by a fusion of advanced technologies and the integration
European Commission
of physical and digital systems, the predominance of innovative business models and new pro-
(2019)
cesses, and the creation of smart products and services.”

“Digital transformation refers to the economic and societal effects of digitization and
digitalization. Digitization is the conversion of analog data and processes into a machine-readable
OECD (2018)
format. Digitalization is the use of digital technologies and data as well as their interconnection
which results in new or changes to existing activities.”
[Digital transformation is a] “process through which companies converge multiple new digital
technologies, enhanced with ubiquitous connectivity, with the intention of reaching superior per-
Ismail, Khater, and Zaki formance and sustained competitive advantage, by transforming multiple business dimensions,
(2017) including the business model, the customer experience (comprising digitally enabled products
and services) and operations (comprising processes and decision-making), and simultaneously
impacting people (including skills talent and culture) and networks (including the entire value
system).”
“the application of technology to build new business models, processes, software and systems that
Schwertner (2017)
result in more profitable revenue, greater competitive advantage, and higher efficiency.”

“Digital transformation is the use of technology to radically improve the performance or reach of
Deloitte (2018) an organization. In a digitally transformed business, digital technologies enable improved pro-
cesses, engaged talent, and new business models.”

“Digital transformation requires the organization to deal better with change overall, essentially
Bloomberg (2018) making change a core competency as the enterprise becomes customer-driven end-to-end. Such
agility will facilitate ongoing digitalization initiatives but should not be confused with them.”

Literature review to investigate the concept of digital transformation was done by various researchers (Nwaiwu,
2018; Reis, Amorim, Melão, & Matos, 2018; Morakanyane, Grace, & O’Reilly, 2017; Hausberg et al., 2018; Henriette,
Feki, & Boughzala, 2015). The main points differing the current research from the previous ones are that the authors
used most recent publications for data collection, and also that the concept was viewed from the business sectors
representatives, who were engaged in the process of DT implementation.

2. Research methodology
The current research was divided into several stages:
1. Data collection.
2. The initial content analysis aimed to reveal elements and categories within the concept.
3. Data analysis based on pre-determined elements, using the method of frequency analysis.
4. Data analysis based on pre-determined categories, using inter-rater reliability evaluation technique.
5. Expert survey to increase the reliability of results.
During the 1st stage of the research, the authors collected definitions of the term “digital transformation”, using
scientific databases Google Scholar and EBSCO, reports, and surveys by the European Commission, OECD, World
Economic Forum and other authorities, as well as papers published by non-governmental organizations. As a result,
30 definitions and text segments collected. Data set divided into three content blocks according to the information
source:
1. Definitions of Digital Transformation, which are used by national and international political and economic
authorities, for instance, European Commission, 2019; OECD, 2018; World Economic Forum, 2016, 2018a,
2018b, 2018c);
2. Definitions of digital transformation, which are used by non-governmental organizations (NGO), business
practitioners and research institutions (Petersen, 2018; Bloomberg, 2018; Corver & Elkhuizen, 2014; MIT
Centre for Digital Business and Capgemini Consulting, 2011; Digital transformation: online guide, 2018;
Gillin, 2016; Next-gen IT, 2018; Kanaracus, Sato, & Wang, 2017; Terrar, 2015; Wang, 2015; Westerman &
Bonnet, 2015; Zysman et al., 2011; “What is digital transformation?”, 2015);
3. Definitions of digital transformation, which are used by researchers (Berman, 2012; Cherry, 2015; Del Rowe,
2017; Fitzgerald, Kruschwitz, Bonnet, & Welch, 2014; Horlacher & Hess, 2016; Iansiti & Lakhani, 2014;

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Verina, N.; Titko, J. 2019. Digital transformation: conceptual framework

Kane, Palmer, Phillips, Kiron, D., & Buckley, 2015; King, 2013; McDonald & Rowsell-Jones, 2012; Matt,
Hess, & Benlian, 2015; Schwertner, 2017; von Knop, 2016; Zhu, Kraemer, & Xu, 2006).
The following structuring of the definitions is used to show the diversity of the information sources but has not
been used for data processing.
The initial content analysis was performed by using a simplified tool – TagCrowd (a web application for visual-
izing word frequencies in any text by creating a word cloud). It allowed creating a list of codes (labels for a group of
synonyms) for further processing. Then, a procedure of the frequency analysis with the application of HAMLET II
software was performed.
To assess inter-rater reliability when coding qualitative data (definitions), Cohen’s Kappa coefficient (Cohen,
1960) was measured. The algorithm of the calculation of the coefficient is described in details by Wood (2007). The
critical value for the coefficient is 0.7, the lower value considered to be unsatisfactory, and the procedure should be
iterated after mutual discussion.
Expert were surveyed, using the authors’ developed questionnaire that contained a respondent profile section, as
well as two main parts: 1) a list of DT definitions that were offered to the respondents for evaluation, using 5-point
scale to express their (dis)agreement; 2) the list of activities/factors to assess their significance for successful DT im-
plementation. Ten experts participated in the survey: representatives of higher education institutions with a strategy
towards digitalization, heads of IT departments from business sector, heads of HR departments surveyed with the
assistance of SmartHR (Latvian HR representatives’ community), representative of academia, and a representative of
BeSmart (multimedia communication platform on business technologies). Nine experts are engaged in DT processes
at the strategic level.

3. Research results
Initial content analysis with the application of TagCrowd web instrument yielded a list of elements, which were
grouped by the authors and the groups were labeled to create a vocabulary list (Figure 2). Vocabulary list was required
by HAMPLET II software to perform further analysis. It contains main entries (codes) and list of synonyms.

Figure 2. Vocabulary list for Hamlet (source: authors’ development)

The results of the analysis performed in Hamlet are reflected in a frequency table (see Figure 3).

Figure 3. Vocabulary list statistics (source: authors’ development)

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Verina, N.; Titko, J. 2019. Digital transformation: conceptual framework

Predictably, technologies are the most frequently mentioned element regarding the concept of digital transfor-
mation. Less, but also often emphasized elements are “Processes”, “Data” and “Business models”. The authors’ latent
purpose was to find arguments about the importance of the “people” element. Based on the preliminary content anal-
ysis, we cannot state that it is the most significant element of DT that researchers are focusing on. On the other hand,
the list of definitions was not so large to make any unambiguous conclusions. Citing the senior director and head of
digital commerce platform transformation at Dell EMC, big changes towards digital transformation “are not solved by
technology, but by people. People, process and technology need to be aligned” (Petersen, 2018).
In the next stage of the research, the authors, using another set of categories, worked independently on the analysis
of the collected definitions. These categories were selected, based on the citation of a senior director and head of digital
commerce platform transformation at Dell EMC Sarika Puri. Speaking about the successful business DT, he stated that
“people, process and technology need to be aligned”. The analysis was made, using the pre-determined categories,
which emerged in the result of the grouping of the identified DT concept elements (Table 2). The following categories
and codes were used for coding:
1. Technologies (TECH – code 1);
2. Management /Processes (MANAGE – code 2);
3. People (PEOPLE – code 3).

Table 2. Categories of the concept “Digital transformation” and the elements within (source: authors’ development)

Technologies Management / Processes People


- Data
- Big data - Customers
- Business models
- Cloud - Employees / workforce / people
- Operating models
- Mobile devices - Managers
- Operational processes
- Social media - Executives
- Strategies
- Software - Talents
- Business activities
- Analytics - Owners
- Organizational structure
- Embedded devices - Suppliers
- Organizational culture
- Artificial intelligence - Partners
- Coordination mechanism
- The Internet of Things - Stakeholders
- Products
- Cybersecurity - Competencies
- New services
- App marketplaces

For measuring the agreement between the authors on categories assigned to the definitions, Cohen’s Kappa co-
efficient was calculated in SPSS. The first attempt yielded the coefficient’s value equal to 0.412.
Due to the unsatisfactory level of the agreement, the content of the definitions was discussed by the raters and the
coding procedure was iterated. The second attempt yielded the coefficient’s value equal to 0.831 (see Figure 4).

Figure 4. Cohen’s Kappa calculation in SPSS II (source: authors’ development)

At the satisfactory rate of agreement on categories assigned to the collected definitions, the category “MANAGE”
was recognized as the most significant category among three pre-determined categories. Definitions of DT concept
usually contain a resulting effect from DT processes that, in turn, is expressed in improved processes, new business
models, etc.

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Verina, N.; Titko, J. 2019. Digital transformation: conceptual framework

To visualize the research results, the simplified conceptual model of digital transformation was created by the
authors, focusing attention on factors enabling DT processes, as well as on potential outcomes for business and society,
(see Figure 5).

Figure 5. A conceptual model of digital transformation (source: authors’ development)

The central block of the model presents three main categories of the concept of digital transformation, while side
blocks represent “inputs” and “outputs”, but specifically the factors driving DT processes and resulting effects of suc-
cessful digital transformation.
The developed model allows better understanding of the main elements and “surrounding” factors of digital trans-
formation that, in turn, can help in the next steps of our research, for instance, in developing a questionnaire to inves-
tigate the awareness about digital transformation about managers and employees in different sectors, as well as to
evaluate the perceived importance of DT processes.
Based on the viewpoint of the experts, the most appropriate definitions of business digital transformation are the
following:
1. [Business digital transformation is …] “the application of technology to build new business models, processes,
software and systems that result in more profitable revenue, greater competitive advantage, and higher effi-
ciency” (Schwertner, 2017).
2. “Digital transformation is the investment in people and technology to drive a business that is prepared to grow,
adapt, scale, and change into the foreseeable future” (Del Rowe, 2017).
In turn, the least accepted definition was “Digital transformation as the integration of digital technology into all
areas of a business resulting in fundamental changes to how businesses operate and how they deliver value to custom-
ers” (“What is a digital transformation?”, 2015).
As for the most important factors for successful business digital transformation, the company’s value and human
factors were selected by most experts (see Table 3).

Table 3. Perceived importance of factors affecting DT processes (source: authors’ conducted survey results)

Number of experts evaluated


Factor
the certain factor as important
- Company’s strategy; orientation towards digital transformation
9 - Organizational culture; company’s values
- Self-motivation of employees; readiness to accept changes
8 - Staff knowledge and competence
7 - Existing infrastructure (technology)
6 - Financial (other) motivation system, supporting staff engagement into DT processes
5 - The financial situation in a company

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Verina, N.; Titko, J. 2019. Digital transformation: conceptual framework

Most experts agreed that digital transformation implementation mainly depends on the corporate message to the
company’s employees, as well as on employees’ willingness to change and their internal resistance or readiness for
transformation processes. It means that top-executives should think about corporate values and their proclamation
among staff members before starting the process of transformation.

Conclusions
The aim stated by the authors within the current research was to get an insight into the concept of digital transformation,
specifically business DT, focusing especially on the human element.
The analysis resulted in the conceptual model of digital transformation that contains three main blocks: DT driv-
ers, DT categories and DT outcomes.
Answering the research questions, we can state that the main elements of the concept are processes and technol-
ogies, but it should be pointed out that digital transformation is not about the implementation of IT solutions only. We
should think about it in a broader context as about “organizational change”, “cultural transformation” and “moving
towards customer-centric approach”. In this regard, the element “people” becomes essential, and even more important
than anything else does. In addition, one of the main barriers to transformation could be staff resistance. This is our
topic for further investigation, and we will start with a higher education sector. Our purpose will be to identify the
biggest obstacles for ensuring a qualitative study process aligned with a digitalization strategy.
Focusing on human factor to boost DT processes assumes not only internal communication with staff members
and other stimulating activities, such as training and motivating, but also re-building recruitment programme. Based
on McKinsey experts (Dahlstrom et al., 2017), “Talent priorities should be based on a clear understanding of the skills
needed at all levels of the business. This requires investing in building relevant digital capabilities that fit with the
strategy.”

Disclosure statement
The authors do not have any competing financial, professional, or personal interests from other parties.

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