Chapter 4: Digital Business, the Digital Business Imperative, and Digital Business Transformation

Digital Business

1. What is the difference between the terms digital transformation and digital business transformation?

The term digital transformation is broadly used to refer to digitization (e.g. converting information into digital format), digitalization (leveraging digital data to facilitating / improving processes), and leveraging digital technologies to redesign processes. It is often used to discuss digital changes to a single process, activity or event, or to a collection of processes / activities / events. Given these diverse uses, it’s meaning is ambiguous.

In contrast to digital transformation, the digital business transformation has a more clear and specific meaning. Digital business transformation refers to the change process involved in becoming a digital business. This change process involves:

• structural changes (e.g. business units, leadership roles, reporting relationships),

• cultural changes (e.g. enabling beliefs, attitudes, and behaviours),

• Capability / Competency changes (e.g. digital technology skills, digital business skills, accelerated change methods), and

• Digital infrastructure changes (e.g. technology infrastructure / architecture, digital technology tools)

2. What is the difference between the terms digital business and digital business transformation?

Digital business is the use of digital technologies to facilitate business models and processes and to offer digital or digitally enhanced products / services.

Research firms Forrester puts it another way by proposing that digital business is the use of digital assets and ecosystems to continually improve customer outcomes while, at the same time, continuously increasing operational agility. And research firm Gartner puts it yet another way by proposing that digital business is the creation of new business designs by blurring the digital and physical worlds

3. Which of the definitions of digital business transformation provided above makes the most sense to you? Why?

Response to this will vary from individual to individual. To the authors, “…the definition of digital business transformation as the change process involved in becoming a digital business” makes the most sense as it recognizes that digital business transformation is not just about technologies (e.g. technology infrastructure / architecture, digital technology tools), but also involves structural changes (e.g. business units, leadership roles, reporting relationships), cultural changes (e.g. enabling beliefs, attitudes, and behaviours), and workforce capability / competency changes (e.g. digital technology skills, digital business skills, accelerated change methods).

4. What does the common assertion that “digital transformation is not about technology” mean?

It means that digital business is not just about changes to the digital technologies used (e.g. technology infrastructure / architecture, digital technology tools). It is also about changes to an organization’s strategy (e.g. business models, bases of competition, strategy execution, adaptability and agility), changes to its structure (e.g. organization hierarchy, business functions, roles and responsibilities), changes to its processes (e.g. operational, functional and strategic processes), changes to its workforce at all levels (e.g. hiring and retention choices, roles and responsibilities, hire and cultivate appropriate competencies, attitudes and behaviors), and changes to its culture (e.g. collective attitudes and behaviors)

5. Are any businesses you know of fully digital businesses? If not, what can make them fully digital businesses?

It’s difficult to say what “fully digital” means as digital business capability or digital business maturity is an evolving continuum. On one end are digital natives like Google, Amazon, Microsoft and Apple, who are very advanced in their digital business capabilities and functioning – and can be considered the closest approximation to “fully digital”. On the other end of the continuum are businesses either turning a blind eye to advancing digital disruption or realizing the need for change but moving glacially to digitize, let alone digitalize most of their processes. An organization can be anywhere along this continuum. However, the final goalposts are constantly shifting with advancements in digital technologies.

6. Once an organization becomes a digital business, does it have any need for digital transformation?

The digital business maturity goal posts (i.e., optimal digital business capability or digital business maturity future states) are constantly changing and changing at a faster and faster rate, we contend that digital business transformation is a constant and never-ending practice. This is not to say that digital business transformation cannot be undertaken at different paces over time; for example, dynamically balancing between significant / rapid digital business transformation efforts less significant / slower / more incremental but continuous transformation efforts.

7. What is meant by the assertion that digital business is “...a change process or a journey”?

This assertion refers to the view of digital business as a journey or process of change (i.e., considers what activities a business should undertake, and in what sequence, in order to become a digital business, to realize the promise of digital business, or to avert the dangers of not becoming a digital business). Such discussed required changes have included digitalizing stakeholder interactions/communications, business processes, business functions, and business models (i.e., turning them into more digital ones), and then connecting and integrating them internally and externally, and with digitalized things internal and external to the organization. Digital business change activities have also included enhancing the sensing (e.g. using sensors), computational capacity (e.g. computation speed, sophistication), connectivity (e.g. connection speed, strength, distance, reliability), intelligence (e.g. using data analytics, data science, artificial intelligence), autonomy (e.g. applications and things that can sense, make decisions, and take corresponding action independently, without human intervention), and scalability of business models/processes/technology platforms (e.g. being able to serve many more customers around the world quickly and at acceptable cost and risk). More recently, digital business change activities have also included activities such as enhancing customer engagement across a range of platforms and channels (e.g. desktop, mobile, social, video, IoT, video), and building digital strategy and digital innovation capabilities to be able to better sense, adapt to, and capitalize on new customer expectations and preferences.

8. What is meant by the assertion that digital business is “... a future state”?

The view of digital business as a future state considers how an organization should function once it becomes a digital business, and what characteristics or capabilities it should have in order to function this way. Such characteristics and capabilities discussed to date include having a frictionless operating system (e.g. one that delivers easy communication/inter- action/engagement and collaboration across the value chain and between internal and external stakeholders);12 having a competitive digital platform strategy13,14 (e.g. one that enables rapid value delivery, enables other stakeholders’ technologies or platforms to integrate/interact with the digital platform in a simple “plug and play” manner, enables easy self-service access to data insights, enables stakeholders to run value creation improve- ment experiments safely, and ensures consistent/dependable customer experience); and designing products and customer experiences based on value as defined by the customer (e.g. leveraging technology to be where customers are, to do things with them, to walk in their shoes, and to understand their preferences and habits). The characteristics and capabilities of a digital business include intelligence-driven decision making or weaponization of data for competitive advantage (e.g., collecting, storing, cleaning, curating, featurizing, modeling, productionalizing, and leveraging to support operational and strategic execution). An increasingly discussed characteristic or capability of digital businesses is combining technical excellence and an engineering culture that gets things done/delivered (e.g., upgrading engineering skills and capabilities to world-class level and cultivating an engineering culture that enables engineering to be more integrated into the business).

9. What are the top 4 benefits of being a digital business? Why are they more important than other benefits?

What are considered the top four benefits can vary from person to person. Examples of top benefits people might identify include:

- From a customer perspective, they expand their ability to engage with their customers, understand them, have an expanded understanding of their needs and preferences, offer them better value, and be able to enter other markets to acquire new customers.

-From a product perspective, digital businesses are better able to identify and act on new product / service / value delivery opportunities or to digitally enhance existing products / services.

-From an operations perspective, digital businesses can realize efficiency and effectiveness breakthroughs that non - digital businesses can’t dream of (e.g., a non - digital business couldn’t dream of the speed - to - market, employee productivity, process efficiency or asset utilization of, say, Amazon or Google).

-From a strategy perspective, digital businesses are able to employ novel, highly agile and highly scalable business models (e.g., marketplaces, ecosystem platforms), are able to unbundle offerings to offer customization / remove nonvalue adding aspects of a product (e.g., so customers can buy the one song they like for $2 instead of a whole album they won’t listen to for $30), and are able to unconstrain supply (e.g., have access to all suppliers rather just a few).

-From a decision-making perspective, digital businesses are able to access massive amounts of data from within and outside of the firm, they are able to optimally manage and use this data to make better and faster decisions (e.g., through access to real time insights). In doing so, they weaponize data and make it a strong competitive capability.

-From a technology infrastructure perspective, digital businesses are able to assemble and integrate hardware, things, networks, software and platforms to enable them to function optimally as a digital business.

-From a people perspective, digital businesses have enough people in the organization with the right digital mindsets (attitudes and behaviours) and skills (e.g., digital technology, digital business and communication / influence skills) to effect a digital business culture (collective appreciation of the importance and urgency of becoming a digital business).

The Digital Business Imperative

10.What is the digital business imperative?

The digital business imperative is a four-pronged ultimatum for businesses. The first such ultimatum is to guard against and have the capacity to adapt to disruption (e.g. like Intel, Disney, and Caterpillar) or face certain death. The second is to become a digital business, and realize the promise of digital business, or become sidelined by competitors who do so (ultimately leading to certain death). The third is to continuously and sufficiently upgrade and leverage digital business capabilities to become the disruptor, or still risk disruption from companies with superior digital business capabilities. This is in spite of being a digital business. Finally, even though businesses may initiate efforts to guard against disruption, to build their capacity to adapt to disruption, to become digital businesses, and to leverage their digital business capabilities in order to become a disruptor, if they can’t do it fast enough (relative to the speed of technology changes and or the speed of existing competitors and new entrants), they may still risk disruption and death.

11.People often talk about digital business imperative and digital transformation imperative. Are these the same or different?

The terms digital business imperative, digital transformation imperative, and digital imperative are often interchangeably used to interchangeably to refer to the digital business imperative.

Digital Business Transformation

12.What are some challenges and risks of digital business transformation?

In general, such all-encompassing change and transformation efforts like digital business transformation have a low success rate. McKinsey points out that the success rate of digital transformation efforts is about 16%. Digital business transformation risks can refer to the potential negative impacts of unsuccessful digital transformation efforts (e.g. financial risks due to resources consumed in transformation efforts, talent risks from key staff departing failing innitiatives, cybersecurity risks from incomplete or ill-conceived technology changes). Digital business transformation risks and challenges can also refer to potential causes of failure in digital transformation efforts. Examples of these include unspoken disagreement among senior managers about the goals and approach to digital transformation, organizations not having the supporting digital capabilities to support the transformation (e.g. appropriately skilled people, technology infrastructure), lack of a clear strategy and CEO sponsorship of it, falling into the “let's wait and see” trap, not understanding what needs to change and how to go about it, challenges getting the right technology and or the right talent to operate it, employee resistance to change or efforts to undermine the change, obsession with technology tools that don’t meaningfully improve customer value, not changing fast enough, challenges sourcing top talent (e.g. technology leaders, digital strategists, designers, DevOps engineers, data scientists, artificial intelligence specialists etc.) and not dealing with employee’s fears of being replaced.

13. What is the success rate for transformation efforts in general? What is the success rate for digital transformation efforts? Why is the success rate for digital transformation efforts much worse?

In general, all-encompassing change and transformation efforts like digital business transformation have a low success rate, with management consultancy firm McKinsey estimating this success rate at about 30%. This means up to 70% of such change and transformation efforts fail to deliver. McKinsey further points out that the success rate of digital transformation efforts is even lower, at about 16%. This is in addition to the challenges of undertaking structural changes (e.g., business units, leadership roles, reporting relationships), cultural changes (e.g., enabling beliefs, attitudes, and behaviors), capability / competency changes (e.g., digital technology skills, digital business skills, accelerated change methods), digital infrastructure changes (e.g., technology infrastructure / architecture, digital technology tools) are notoriously difficult (e.g., beset by a constant assault on technology standards, integration and interoperability challenges, security and privacy challenges).

14.What are two important implications of digital business and digital business transformation accountants?

One important implication is that accountants can play a critical business partnering, information provision, risk management, and assurance roles in digital business transformation and digital business. For example, they can ensure that the best decisions are made based on relevant and credible data, they can ensure that smart investments in enabling technologies and digital tools are made, they can ensure that safe business model changes and process redesigns occur, and they can ensure that the growing transformation (or lack of transformation) risks are managed effectively. This is part of their emerging roles as co-pilots (e.g. change facilitators and strategy execution facilitators), navigators (e.g. strategic foresight, agility, and sustainable profitability enablers), brand protectors (e.g. risk managers and stewards), storytellers (e.g. helping managers understand the story behind the data), trusted professionals (e.g. ensuring ethical and responsible risk-taking), process control experts (e.g. supporting effective process and workflow redesign), and digital business and digital technology enablers (e.g. enabling digital technology adoption and digital business transformation). Given this vital position they occupy and the roles they can play, they are critical to the success of digital transformation efforts. A second implication is that through their actions (or lack of action) they can significantly enhance the chance of success or significantly derail the chances of success of digital business transformation efforts.

15.What are 5 things accountants can do to maximize their organizations’ odds of succeeding at digital transformation?

To maximize their organizations’ odds of succeeding at digital business transformation, accountants can develop their digital business / digital transformation competencies and then leverage these competencies to support organization digital business transformation efforts.

To develop these competencies, accountants can undertake ongoing groundwork to understand and keep up with digital technologies (e.g. cloud, IoT, Ai, blockchain, robotics, drones, LPWAN, LEO satellites, etc.), to understand and keep up with digital business and digital transformation (e.g. digital business characteristics, digital business strategy, digital business models, digital innovation practices, successful digital transformation approaches and practices, digital transformation leadership roles and responsibilities, etc.), and to understand relevant accelerated change and transformation methodologies (e.g. agile, lean, change management). They can then build digital technology, digital business, and digital transformation competencies (e.g., deep and broad technical technology and data skills, strategic technology skills, digital leadership skills, strategic thinking skills, cross functional leadership and change management skills, etc.). Further, they can build informal networks vertically and across the organization that are important for accelerating strategy execution and change / transformation efforts.

Having done the ongoing groundwork to develop the aforementioned digital technology, digital business, and digital transformation capabilities, accountants can then leverage these competencies to accelerate and improve the odds of success for digital transformation efforts. For example, they can use their digital transformation and digital business knowledge and skills to support managers to cultivate the digital business and digital transformation competencies of their direct reports; and of other people across the organization. They can support managers to shape appropriate digital business and digital transformation attitudes and behaviors, thus helping nurture the digital culture to support digital business transformation efforts. They can support managers to ensure the hiring of direct reports and other employees with appropriate digital business and digital transformation attitudes and skills. They can leverage their digital business and digital transformation knowledge / skills to take on and successfully carry out one or more key digital transformation leadership roles (e.g., chief digital officer, project / program manager, operating model lead, customer engagement lead, digital product manager, ethics compliance lead, UX designer, change and transformation specialist, digital risk manager, etc.). Or they can support such leaders to ensure they successfully fulfil those roles. They can leverage their informal networks to accelerate implementation of transformation initiatives, and to encourage functional and frontline staff to understand and accept transformation-related changes. Finally, they can leverage their technology and data skills to work hand in hand with technologists, operational and functional leaders, and senior executives to accelerate transformation efforts while limiting the associated risks.