Session 7:

Building digital capabilities and creating

digital leadership

Digital strategy
Two-year Msc

Course coordinator: Nabila BOUKEF Ph.D

Associate Professor in information Systems and digital transformation
SKEMA Business School
Course schedule

 Session 1: Rethinking strategy in the digital era

 Session 2: Digital strategy formulation

 Session 3: Strategy approaches and ambidexterity strategy

 Session 4: Digital platforms strategies

 Session 5: Differentiation strategies and competition in the sharing economy

 Session 6:Digital strategy and Business process transformation

 Session 7: Building digital capabilities and creating digital leadership

 Session 8: Digital strategy execution in practice: Fostering innovation in the digital era
The three steps of our digital journey

3- How ?

2- What?

1- Why?
 1- Understanding the new rules of the game and the
new capabilities enabled by the technology
3- How ?

2- What? D.Rogers
framework

1- Why? Customers

Competition

Data

Innovation

Value

What has changed so far in the digital era that trigger companies to rethink
their strategy?
2- Create a competitive advantage with digital
technologies that is sustainable

1- Digital ambition
3- How ? 2- Three options to
transform business with
digital technologies
(enhancing customer
experience, operational
2- What? excellence, Reinventing
business Model)

3- Strategy approach
1- Why? (the extent to which the
environment is
predictable and
malleable)
4- Ambidexterity
(balance between
exploration and
exploitation)
Focus on the specific case of digital platforms

1- Platforms are light in

assets

3- How ? 2- The importance of the

network effect

3- The importance of
orchestrating the
relationships between
2- What? producers and consumers
of the platform.

4- Different risks and

1- Why? higher failure

5- The differentiation
strategy (user experience,
technology, partnership)

6- Incumbent companies
need to cope the risks of
the platforms
3- Execute the digital strategy

3- How ?

2- What?

1- Why?
 Customers Drivers of digital disruption
Why? Value
Data
Innovation
Competition
Create a competitive Strategy approach Digital growth
advantage
- Customer experience  Classical approach  Switching
 Self-organizing
What - Operational
excellence
- BM



Adaptive approach
Visionary approach
Shaping approach


Separation
Ecosystem (acquisition,

? Leverage
capabilities
existing  Renewal  partnership, incubator).

Transform your business with digital technologies

End-to-end approach to redesign customer experience

(improve customer experience and change processes)

How? Digital capabilities Digital leadership

Session 7
Questions addressed during this session
 How do companies cope with the constraints related to their legacy
systems? How do companies create digital capabilities?

 How do companies promote digital workplace necessary to foster digital

transformation?

 Why managing an ecosystem create a competitive advantage in the digital

era?
Outline for this session

1. Building digital capabilities

2. Managing digital leadership

 Digital workplace: the missing piece

 Digital leadership through ecosystem

3. Digital maturity framework

1. Building digital capabilities
Lego case study (Digital capabilities)

El Sawy et al., 2016, «How LEGO Built the

Foundations and Enterprise Capabilities for
Digital Leadership », MISQ executive, (16:2),
pp. 141-166
Class discussion

 Explain why does Lego need two different platforms?

Digital capabilities

Digital capabilities consist of:

1- An operational backbone: in the case of Lego the company has an ERP system. The
aim of the ERP implementation was the standardization of the processes.
However, the company was facing some challenges related to its IT system (existence
of silos and lack of visibility related to some activities).
The company has to handle these issues to successfully execute its digital
transformation. In that sense, different initiatives were realized that aim to:
• Enhance data sharing and analytic capabilities
• Streamline processes
• Improve visibility of operations.
The need to fix Lego’ s operational backbone

Jørgen Vig Knudstorp, LEGO’s CEO, highlighted the problems related to the supply
chain:
“One of the things that dawned on me when I arrived at the LEGO Group was that
basically you have an allocation problem. You are producing 100,000 components
every minute, 24 hours a day, 365 days a year. And you have to allocate them in
optimal quantities at different sites, so that you can deliver a set of finished
products at Walmart in Arkansas on Tuesday at 5:00 p.m. (and not 5:00 a.m.) in
optimal order quantity, optimal transportation quantity, optimal manufacturing
batches and so on.”

LEGO addressed its crisis by leveraging an under-used ERP system to get its
supply chain processes under control.
2- A well-structured digital platform:
A digital platform is needed in order to handle customers interactions.

This digital platform has some characteristics:

 Digital interaction and availability 24/7
 User driver experience
 Experimentation
 Quickly added functionality
 Intuitive interface

This digital platform is necessary to manage the relationships with the different
partners of the ecosystem.
 Enterprise and engagement platforms

El Sawy et al., 2016, «How LEGO Built the Foundations and Enterprise Capabilities for Digital Leadership », MISQ executive, (16:2), pp. 141-
166
Illustration: Loan process
(Practice exercise, session 6)
Loan process
 A sales force agent calls the insurance headquarters to issue a loan request for
a customer. A sales clerk types in the information into a computer system and
checks the liability of the customer. This clerk writes down the results of the
liability check and hands it over to the next link in the chain: the contracting
department.
 This department is responsible for customizing the standard loan contract for
the customer. The department uses its own computer system. After having
finished this work, a contracting agent staples together the request form with
the special conditions.
 As a next step, a pricing agent in the contracting department enters the
information into spreadsheet software and calculates which interest rate
applies to the customer. The agent notes this rate on a sheet of paper and
hands it on together with the material from the sales department.
 Finally, a sales department agent creates a proposal and sends it back to the
sales force agent via express mail.
Loan process: Probmems related to the process and need to
review the process (BPR)
1. Sales force calls the insurance
2. A sales clerk types the information into a computer system
3. He checks the liability of the customer
4. The clerk writes down the results of he liability
5. The clerk hands it over to the next link
6. The contracting department customizes the standard loan contract
7. A contracting agent staples together the request form with the special conditions
8. A pricing agent in the contracting department enters the information into the spreadsheet software
9. He calculated wish interest rate applied to customers
10. He notes this rate on a sheet
11. He hands it over
12. The sales department agents creates a proposal and send it back to the sales force agent via express mail
IMPROVED PROCESS FLOW (this is a proposition)

1. The customer logs into the insurance online application, and fills all required information for requesting a new
loan
2. Sales clerk checks the liability of the online information provided by the customer (this can be done
automatically)
3. If it is valid, a notification is sent to the contracting department, if not, the customer is asked to meet a sales agent
to provide further information.
4. The contracting department customizes the contract loan and then attaches it to the special conditions all found
online (the use of the same ID for the customer enables better customization of the contract)
5. Based on the special conditions, the system calculates the interest rate.
6. The pricing agent check the interest applied.
7. A proposal is created and a notification is sent to the sales department
8. A sales department agent check the proposal online, if it is ok, a notification is sent to the customer
9. The customer logs into the insurance online application to get the result of its request ( a meeting with a sales
agent is proposed) .
How can digital technologies improve business process?
A digital
technology
that fosters
engagement
1. The customer logs into the insurance online application, and fills all required information for requesting a new
loan
2. Sales clerk checks the liability of the online information provided by the customer (this can be done
automatically)
3. If it is valid, a notification is sent to the contracting department, if not, the customer is asked to meet a sales agent
to provide further information.
4. The contracting department customizes the contract loan and then attaches it to the special conditions all found
online (the use of the same ID for the customer enables better customization of the contract) A digital
5. Based on the special conditions, the system calculates the interest rate. technology
6. The pricing agent check the interest applied. that fosters
coordination
7. A proposal is created and a notification is sent to the sales department and control
8. A sales department agent check the proposal online, if it is ok, a notification is sent to the customer
9. The customer logs into the insurance online application to get the result of its request ( a meeting with a sales
agent is proposed) . A digital
technology
that fosters
engagement
Building Technological capabilities

 Operational backbone is prerequisite for incumbent companies to engage in a

digital transformation.

 Digital platform: Born-digital companies outperform incumbent companies in

analytics capabilities and their ability to provide personalization thanks to their
digital platforms.
 Operational backbone:

 Companies that implemented an enterprise system (ERP, CRM, Supply chain

management system) benefited from process integration.

 Operational backbone enables companies to automate processes and enhance

speed and data accuracy.

 It is not sufficient to execute a digital strategy. It does not enable speed and
flexibility.

Sebastion et al., 2017 « How Big Old Companies Navigate Digital transformation ”, MISQ executive, (16: 3), pp. 197-213.
What is an ERP?

 Modular, integrated software applications that span (all) organizational functions

and rely on one database at the core.

(Laudan & Laudan, 2016)

Understanding ERP and the challenges of
process integration
Core Business Processes

 Traditional business functions:

 Marketing and sales
 Supply chain management
 Accounting and finance
 Human resources
 Not distinct independent silos, but instead highly interrelated
 Business processes cross boundaries of business functions.

(Valacich et Schneider, 2017)

 Companies are constrained by their legacy system.

Legacy spaghetti is:

IT3 IT2

 hard to manage (complex)

 expensive (costly) IT1 IT5
 Inefficient (inaccurate data, data
IT4
redundancy, higher risk of errors)
 Hard to make it evolve Example of legacy spaghetti
Legacy systems

 Each department has its own system.

 Infrastructure specific

 Inefficient processes

 Potential for inaccuracies

 Too many “rocks in the

river”
Enterprise System Approach
 Integrated suite of business applications for virtually every department,
process, and industry

(Valacich et Schneider, 2017)

Supporting Business Processes

 Internally focused systems

 Support functional areas, business processes, and decision making within an organization
 New information (value) is added at every step.

(Valacich et Schneider, 2017)

 Creating new business capabilities through digital platform

 Digital platform creates new business capabilities:

 It allows to perform advanced analytics capabilities

 It provides companies with a single view of customers
 It enables company to engage with customers and personalize their interactions.
 It enables the ecosystem users to create value for other users (it can improve
customers, employees and partners experience).
The need for well-managed and well-defined platform

 Strong leadership ensures the coherence of the digital platform.

 Unnecessary requests add complexities to the platform and hinder its

efficiency.

 Complex platforms are hard to change and expensive to run effectively.

Close IT-business relationship is necessary

Communication
Trust
Shared understanding
Cooperation
2. Digital workplace: the missing piece
Digital transformation is also about new ways of working

 New Digital technologies

 New ways of doing business
(New Business models, New
products, new services)

 New ways of working

Digital workplace definition

 « the physical, cultural and digital arrangements that simplify working life in

complex, dynamic and often unstructured working environments »

Derry et al., 2017 «The digital workplace is key to digital innovation”, MISQ executive, (16: 2), pp. 135-152.
The digital workplace dimensions

Derry et al., 2017 «The digital workplace is key to digital innovation”, MISQ executive, (16: 2), pp. 135-152.
 Promote employees connectedness

silos Connected

Command-and-control environment “Connectedness refers to the extent to

inhibits connectedness (across which employees can engage with each
functional or product silos, geographies other, with stakeholders and customers,
and company boundaries). with information and knowledge, and
with ideas” (P.136).
Derry et al., 2017 «The digital workplace is key to digital innovation”, MISQ executive, (16: 2), pp. 135-152.
Employee connectedness: Diamond or Graphite?
Connections matter!
How to promote connectedness in the workplace?

 Changing the physical space in order to create opportunities for employees to

meet face-to-face (Saying « HI » still matters).

 Investing in new ITs that improve employees experience

 Connecting employees through collaborative platforms

Derry et al., 2017 «The digital workplace is key to digital innovation”, MISQ executive, (16: 2), pp. 135-152.
Responsive leadership: promote and develop employee
experience
Creativity and Knowledge sharing Good relationships
innovation and collaboration

Well-being and happiness Employees empowerment Speak up

Leadership is needed to foster digital transformation

 Communicate very clearly and effectively about the motivation of the digital
transformation (a priority within the company’s strategic vision and make regular
reports on the progress made). Absence of information create anxiety and thus
foster resistance. Communicate clearly about the new workplace design and its link
to the strategic objectives.

 Increase employees’ engagement by empowering them and giving them a voice.

Digital technologies enable you to engage employees at scale.

 Promote a learning culture that encourages experimentation and trial (Promote a

culture that encourage and value innovation).
McConnel J., 2018, « How digital leaders inspire engagement », Blog MIT Sloan Management Review, 27th avril 2018
Audi Case study

Digital workplace
Teamwork:

Read Audi case and answer the following questions:

1- Analyze the workplace strategy and explain how does it contribute to digital
transformation outcomes.

2- How does the company foster employee connectedness?

3- How does leadership contribute to transform workplace?

Class discussion
3. Digital leadership through ecosystem
Ecosystem

 Successful companies partner with other companies to provide better value for
their customers.

 This partnership can either be inside or outside the company’s industry.

 Change in mindset: from managing a portfolio of products and services to co-

creation of capabilities and managing a set of relationships across ecosystems.
Example of ecosystem
Partnership

Car Entertainment
Coordinate services to provide better value for customers

Audi differentiation
 Audi from its competitors

 Developers

 Property managers

 Residents of luxury residences

New ways to win in the digital era through ecosystems

 Companies should identify the relevant ecosystems that enable them to

provide better value for their customers (which capabilities can be acquired
through the ecosystem?).

 What are their roles in this ecosystem (leader/ participant)?

 Ecosystems are evolving depending on new opportunities (integrate new

participants, change in the leadership).
Conclusion
 1. Building digital capabilities

 Incumbent companies are constrained by their legacy system.

 To successfully embark in a digital transformation, incumbent companies need

to have both :
 An operational backbone
 A well-defined digital platform :A digital platform should be capabilities driven
bot technology driven.
 Digital capabilities should be developed through close IT-business
relationships.
 2. Managing digital leadership

 Competing in the digital age requires new set of capabilities (creativity, agility),
new ways of working, and managing relationships with other companies.

 Promoting new ways of doing business is key to go successfully through digital

transformation.

 Digital workplace encompasses both employee connectedness and responsive

leadership.

 Successfully managing an ecosystem is a strategic advantage in the digital era.

 Drivers of digital transformation
Analyzing the new rules of the games and opportunities enabled by the
Why? digital technologies
Use the Framework of D. Rogers
(Data, customers, Value, Innovation, competition)
Create a competitive Strategy approach Digital growth
advantage
 Classical approach  Switching
Customer intimacy  Adaptive approach  Self-organizing
What operational
excellence


Visionary approach
Shaping approach


Separation
Ecosystem (acquisition,

? reinvent BM  Renewal  partnership, incubator).

Digital Platforms strategy

Transform your business with digital technologies

End-to-end approach to redesign customer experience
(improve customer experience and change processes)

How? Digital capabilities Digital leadership

 Operational backbone Digital workplace (employee
 Well-designed digital platform connectedness and responsive
 Close relationships between IT leadership)
and business people. Manage your ecosystem
 Customers
Value
Data
Drivers of digital disruption
Innovation
Why? Competition

Create a competitive Strategy approach Digital growth

advantage

New BM (both customer Adaptive approach Foster innovation internally

What intimacy and operational

excellence).
(experiment) (hackathons)
Incubating companies

? Leverage
capabilities
existing

Transform your business with digital technologies

Agile and scalable digital operations
New digitally enabled customer experience (higher affordability, greater
accessibility and wider social connectivity).

How? Digital capabilities Digital leadership

Robust and flexible platform Relying on an ecosystem (incubating

(interactions with customers, data digital innovations).
analytics, digital products and services Digital workplace (development of
can be delivered) digital skills required for digital
Reconfigurations of IT functions. transformation, encourage
innovation…)
 Customers Drivers of digital disruption
Why? Value
Data
Innovation
Competition (sharing economy pure players and competitors)
Create a competitive Strategy approach Digital growth
advantage
Differentiation (Create a
Adaptive
What competitive advantage
through new BM)
Leverage existing
(Experimentation)
Creating a separate
company (separation and
integration (through

? capabilities (premium
cars)
people and IT)

Transform your business with digital technologies

Tranform you Business (New BM, new value for customers, different processess)

How? Digital capabilities Digital leadership

Creating a platform (build new Relying on an ecosystem

technological capabilities) Digital workplace (cross functional
Hybrid teams competence network, agile teams,
collaboration spaces, employees
empowerment).
 Customers
Value
Data
Drivers of digital disruption
Innovation
Why? Competition

Create a competitive Strategy approach Digital growth

advantage

Differentiation (Create a Reduce cost and new A digital officer appointed for

What competitive
through new BM)
advantage BM (Renewal) each business area).
Innovation process
distributed and close to the
is

? Leverage
capabilities
existing
business expertise.
Partnerships

Transform your business with digital technologies

Tranform you Business (New BM, new value for customers (new products,
omnichannel move, augmented reality), different processess)

How? Digital capabilities Digital leadership

Enterprise platform (ERP) Relying on an ecosystem (users,

Engagement platform employees, developers)
Close collaboration of IT people with Digital workplace (new way of
business units and external partners. recruiting, knowledge sharing,
playfulness and fun culture…).
Digital mastery: different levels
Four levels of digital mastery
Invest in new
trendy
technologies but Excel at both
they lack the digital capabilities
digital leadership Digital
Fashionistas and digital
necessary for Masters leadership
their digital
transformation

Digital
capability
Cautious
approach
Beginners Conservatives regarding new
At the start of
their digital technologies.
journey (Wait and
see strategy)

Leadership capability

Source: Westremann G., Bonnet D. and McAfee A.,  Leading digital », p. 15.

Digital masters generate more revenue than others

Digital
+6% Fashionistas +9%
Masters

Digital
capability

-4% Beginners Conservatives -10%

Leadership capability

Source: Westremann G., Bonnet D. and McAfee A.,  Leading digital », p. 18.

Digital masters are more profitable

Digital
Fashionistas
-11% Masters +26%

Digital
capability

Beginners Conservatives
-24%
9%

Leadership capability

Source: Westremann G., Bonnet D. and McAfee A.,  Leading digital », p. 18.

Reflect and apply
Teamwork

 What is the level of digital mastery for each of the following companies
(Novartis and Hotel Bellazur)? (justify your answer)
 Case study 1: Novartis

The pharma industry has not been at the frontline of the digital revolution, taking advantage of
the opportunities that it brings. Companies have taken different initiatives to benefit from the
digital transformation but they are at the start of their digital transformation journey. For
instance, Navartis has introduced digital approaches across all parts of its business: “Embracing
digital and data is a top priority for Novartis”. However, investment in advanced digital
capabilities is still limited and there is no effective transformation of the management in place.

https://www.mobihealthnews.com/news/europe/how-novartis-embracing-digital-and-data-revolution
Case study 2: Hotel Bellazur

Hotel Bellazur has invested massively in a large amount of digital technologies to

further interactions with its customers. Executives believe they must move fast to
keep up with the fast-moving world of consumer electronics, but do not
necessarily have a clear vision for how these different initiatives will collectively
create value.
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