© 2011 MIT Center for Digital Business. All rights Reserved.

Digital Transformation: State of Management Practice in

Traditional Industries

Project Update

CDB Sponsor Meeting

May 19, 2011

George Westerman georgew@mit.edu; 1-617-253-2939

This research project is a collaboration with Capgemini Consulting.

2 © 2011 MIT Center for Digital Business. All rights Reserved.

What is Digital Transformation ?

Radically improving businesses through digital technology,

from strategy to people to operations…

New business models

Richer, more coherent customer experiences

Smarter decisions throughout the organization

Faster and stronger internal collaboration

Seamless links with customers and suppliers

3 © 2011 MIT Center for Digital Business. All rights Reserved.

3-Year Research Program; Now in Month 7

Phase I

Qualitative Study

Phase II

Quantitative Survey

• Interviews with ~100 senior executives in 25-30 large successful firms

• Focus on traditional industries globally

• To date: 54 interviews, 17 companies; 7 countries, 74% non-IT execs

• How is your business and your role transforming?

• What effects are key technologies having? (Social Media, Mobility, Analytics, Embedded devices)

• What are key challenges and enablers?

• Detailed coding

• Cross-case / cross-role analysis to assess extent and drivers of digital transformation in internal and external processes and capabilities.

• Case vignettes

Interview process Core questions Analysis

4 © 2011 MIT Center for Digital Business. All rights Reserved.

Preliminary Findings

Most firms are not taking advantage of the transformative potential of digital technologies, even for technologies they already possess.

Trends will drive transformation

• Globalization affecting all firms. Most starting to rethink structure and process

• Pace of change increasing

• Customers and employees demanding new ways of working

Incremental change underway in most firms

Some companies already starting digital transformation

• Executive-level vision and inter-organizational collaboration required

• Many organizations face difficulty translating vision into reality

• Reliance on vendors has benefits and issues

5 © 2011 MIT Center for Digital Business. All rights Reserved.

Improving Internal Processes

Substitution

• Email and browsing on mobile phones

• Working from home

• Remote collaboration (video, wiki, SharePoint, etc.)

Enhancement

• ERP-informed strategic decisions

• Broader involvement in strategy making processes

• Office without walls

• Location-aware maintenance processes

Transformation

• Simultaneous centralized / decentralized sales force processes

• Analytics-based insurance underwriting

• Digital product design process in sync with suppliers

6 © 2011 MIT Center for Digital Business. All rights Reserved.

Improving Customer Interactions

Substitution

• Corporate Facebook page

• iPad bid books or insurance sales

• Twitter monitoring

Enhancement

• Personalized digital signage kiosks

• Social media community selling for medical devices

Transformation

• Outbound calling to sell products along an intended delivery route

• Customized products through website

• Location-aware mobile coupons based on analytics

7 © 2011 MIT Center for Digital Business. All rights Reserved.

Opportunity: Connecting Internal and External Processes

Home Improvement Supplier Opportunities mentioned

by other firms:

• Connect custom orders

and concept stores to

digital product design

• Transform from medical

products to hospital and

consumer processes

• Transform marketing

into unified customer

experience

Local Distribution

Center

Central

Call Center

ERP + add-ons

8 © 2011 MIT Center for Digital Business. All rights Reserved.

Digital Transformation Framework (Preliminary)

Transformed Customer

Experience

Transformed Internal Process

Chem

Resort

Insure2

Medical

Home

Improvement

Apparel

Mktg

Apparel

Ops

Media

Invest

Insure1

9 © 2011 MIT Center for Digital Business. All rights Reserved.

Inhibitors and Enablers for Digital Transformation

Regulatory / privacy issues

Culture of the company

Organization structure

Poor IT capabilities or IT/Business relationships

Senior executive digital awareness

Internal skills

Siloed vendor relationships

Inhibitors Enablers

Executives willing to challenge sacred assumptions

Transformative vision

• Product Solution; Marketing Service; Multinational Global;

• Digital artifacts and processes

• Investing in strategic bets

Effective transactional core (ERP, Data)

Defined unit with transformation agenda (in some companies)

10 © 2011 MIT Center for Digital Business. All rights Reserved.

Phase I

Qualitative Study

Phase II

Quantitative Survey

Next Steps for Phase 1

Additional Questions Being Examined Do firms need a “digital czar”?

Can the CIO drive digital transformation?

Must core transactions and data be well structured in advance?

Can transformation happen bottom-up?

When is an incremental approach better than transformation?

How can firms balance the new and old effectively?

Others will emerge…

Summer 2011 • Additional interviews / coding

• Develop final framework

• Start case studies

Fall 2011 • Workshops

• Finish Phase 1 Publication

• Launch Phase 2

11 © 2011 MIT Center for Digital Business. All rights Reserved.

Thank You!

georgew@mit.edu

+1-617-253-2939

12 © 2011 MIT Center for Digital Business. All rights Reserved.

Project Team*

Dr. Andrew McAfee

Principal Investigator

Principal Research Scientist

MIT CDB

Dr. George Westerman

Project Lead

Research Scientist

MIT CDB

Claire Calméjane

Managing Consultant

Capgemini Consulting

Gregory Gimpel

Post-Doctoral Associate

MIT CDB

Maël Tannou

Senior Consultant

Capgemini Consulting

Didier Bonnet, Vice-President

Head of Strategy and Development

Capgemini Consulting

Patrick Ferraris, Vice-President

Global Leader Digital Transformation

Capgemini Consulting

And also

Cyril Francois (VP Capgemini Consulting),

Martin Hanlon (Director Capgemini Consulting),

Jérôme Buvat (Director Capgemini Consulting)

* Many of the team members are supporting the

project part-time in addition to other duties

13 © 2011 MIT Center for Digital Business. All rights Reserved.

Contact

David Verrill, Executive Director

dverrill@mit.edu; 617-452-3216

MIT Center for Digital Business http://digital.mit.edu

Directed Research in Digital Business

Sponsors

• Founding: Capgemini, Cisco, Cognizant, GM,

McKinsey, SAP, Suruga Bank, Thomson Reuters

• Research: BT, IPC, Liberty Mutual

• Member: Google, HP, SAS, Siemens Healthcare

Leadership

• Chairman – Glen Urban

• Director – Erik Brynjolfsson

• Executive Director – David Verrill

• Associate Director – Andy McAfee

Special Interest Groups

• Digital Productivity

• Digital Marketing

• Digital Services and the Cloud

Sample Projects

• The Cloud as Platform

• Business Implications of Enterprise 2.0

• Deriving Competitive Advantage from IT

• Productivity and Internal Knowledge Markets

• Systems Dynamics and Business Intelligence

• Measuring the Productivity of Information Workers

• Web & Mobile Morphing to Individual Cognitive Style

Deliverables

• Directed Research Projects

• Thought Leadership

• Recognition

• Education

• Access

• Events