SEBASTIAN ROSS BEATH MOCKER MOLONEY AND FONSTAD SEPTEMBER

SEBASTIAN, ROSS, BEATH, MOCKER, MOLONEY, AND FONSTAD – SEPTEMBER 2017 HOW BIG OLD COMPANIES NAVIGATE DIGITAL TRANSFORMATION NEW DIGITAL TECHNOLOGIES PRESENT BOTH GAME-CHANGING OPPORTUNITIES FOR—AND EXISTENTIAL THREATS TO—COMPANIES WHOSE SUCCESS WAS BUILT IN THE PRE-DIGITAL ECONOMY. THIS ARTICLE DESCRIBES OUR FINDINGS FROM A STUDY OF 25 COMPANIES THAT WERE EMBARKING ON DIGITAL TRANSFORMATION JOURNEYS. WE IDENTIFIED TWO DIGITAL STRATEGIES—CUSTOMER ENGAGEMENT AND DIGITIZED SOLUTIONS—THAT PROVIDE DIRECTION FOR A DIGITAL TRANSFORMATION. TWO TECHNOLOGY-ENABLED ASSETS ARE ESSENTIAL FOR EXECUTING THOSE STRATEGIES: AN OPERATIONAL BACKBONE AND A DIGITAL SERVICES PLATFORM. WE DESCRIBE HOW A BIG OLD COMPANY CAN COMBINE THESE THREE ELEMENTS TO NAVIGATE ITS DIGITAL TRANSFORMATION.

HOW BIG OLD COMPANIES NAVIGATE DIGITAL TRANSFORMATIONS SEBASTIAN, ROSS, BEATH, MOCKER, MOLONEY, AND FONSTAD – SEPTEMBER 2017 Elements of Successful Transformation Two Strategies Executing a Strategy Accommodating Both Operations and Digital Services Impact of Digital Transformation on the IT Unit Recommendations Concluding Comments 2 of 17

HOW BIG OLD COMPANIES NAVIGATE DIGITAL TRANSFORMATIONS SEBASTIAN, ROSS, BEATH, MOCKER, MOLONEY, AND FONSTAD – SEPTEMBER 2017 3 Elements of Successful Digital Transformation §A digital strategy that defines a SMACIT-inspired value proposition § SMACIT: social, mobile, analytics, cloud, and internet of things §An operational backbone that facilitates operational excellence §A digital services platform that enables rapid innovation and responsiveness to new market opportunities. 3 of 17

HOW BIG OLD COMPANIES NAVIGATE DIGITAL TRANSFORMATIONS SEBASTIAN, ROSS, BEATH, MOCKER, MOLONEY, AND FONSTAD – SEPTEMBER 2017 Elements of Successful Transformation Two Strategies Executing a Strategy Accommodating Both Operations and Digital Services Impact of Digital Transformation on the IT Unit Recommendations Concluding Comments 4 of 17

HOW BIG OLD COMPANIES NAVIGATE DIGITAL TRANSFORMATIONS SEBASTIAN, ROSS, BEATH, MOCKER, MOLONEY, AND FONSTAD – SEPTEMBER 2017 Two Digital Strategies §Customer engagement strategy §Digitized solutions strategy §Choosing a digital strategy 5 of 17

HOW BIG OLD COMPANIES NAVIGATE DIGITAL TRANSFORMATIONS SEBASTIAN, ROSS, BEATH, MOCKER, MOLONEY, AND FONSTAD – SEPTEMBER 2017 Elements of Successful Transformation Two Strategies Executing a Strategy Accommodating Both Operations and Digital Services Impact of Digital Transformation on the IT Unit Recommendations Concluding Comments 6 of 17

HOW BIG OLD COMPANIES NAVIGATE DIGITAL TRANSFORMATIONS SEBASTIAN, ROSS, BEATH, MOCKER, MOLONEY, AND FONSTAD – SEPTEMBER 2017 Two Technology-enabled Assets are Essential to Executing a Digital Strategy §Operational backbone enables operational excellence §Digital services platform enables rapid innovation 7 of 17

HOW BIG OLD COMPANIES NAVIGATE DIGITAL TRANSFORMATIONS SEBASTIAN, ROSS, BEATH, MOCKER, MOLONEY, AND FONSTAD – SEPTEMBER 2017 Elements of Successful Transformation Two Strategies Executing a Strategy Accommodating Both Operations and Digital Services Impact of Digital Transformation on the IT Unit Recommendations Concluding Comments 8 of 17

HOW BIG OLD COMPANIES NAVIGATE DIGITAL TRANSFORMATIONS SEBASTIAN, ROSS, BEATH, MOCKER, MOLONEY, AND FONSTAD – SEPTEMBER 2017 How Big Old Companies Accommodate Both an Operational Backbone and a Digital Services Platform §Digital services invariably link up with the operational backbone §Eliminate technology differences between them 9 of 17

HOW BIG OLD COMPANIES NAVIGATE DIGITAL TRANSFORMATIONS SEBASTIAN, ROSS, BEATH, MOCKER, MOLONEY, AND FONSTAD – SEPTEMBER 2017 Table 1 Operational Backbones & Digital Services Platforms Require Different Management Operational Backbone Digital Services Platform Management Objective Business efficiency and technology reliability Business agility and rapid innovation Architecture Principles Standardized end-to-end business processes; transparency into systems; data access Plug-and-play business and technology components Data Single source of truth for transactional data Massive repositories of sensor/social media/purchased data Key Processes Roadmaps; architecture reviews Cross-functional development; user-centered design Delivery Method Fast waterfall/regular software releases/Saa. S adoption Agile and Dev. Ops; use of MVP (minimum viable product) concepts and constant enhancements Funding Major project/program investments Continuous funding by business owners 10 of 17

HOW BIG OLD COMPANIES NAVIGATE DIGITAL TRANSFORMATIONS SEBASTIAN, ROSS, BEATH, MOCKER, MOLONEY, AND FONSTAD – SEPTEMBER 2017 Elements of Successful Transformation Two Strategies Executing a Strategy Accommodating Both Operations and Digital Services Impact of Digital Transformation on the IT Unit Recommendations Concluding Comments 11 of 17

HOW BIG OLD COMPANIES NAVIGATE DIGITAL TRANSFORMATIONS SEBASTIAN, ROSS, BEATH, MOCKER, MOLONEY, AND FONSTAD – SEPTEMBER 2017 The Impact of Digital Transformation on the IT Unit §Business changes §IT impacted in particular §All departments eventually impacted 12 of 17

HOW BIG OLD COMPANIES NAVIGATE DIGITAL TRANSFORMATIONS SEBASTIAN, ROSS, BEATH, MOCKER, MOLONEY, AND FONSTAD – SEPTEMBER 2017 Elements of Successful Transformation Two Strategies Executing a Strategy Accommodating Both Operations and Digital Services Impact of Digital Transformation on the IT Unit Recommendations Concluding Comments 13 of 17

HOW BIG OLD COMPANIES NAVIGATE DIGITAL TRANSFORMATIONS SEBASTIAN, ROSS, BEATH, MOCKER, MOLONEY, AND FONSTAD – SEPTEMBER 2017 Recommendations for Digital Transformation at Big Old Companies §Elements of digital transformation §Define a digital strategy §Invest in operational backbone §Architect a digital services platform §Remember partners §Adopt a service culture 14 of 17

HOW BIG OLD COMPANIES NAVIGATE DIGITAL TRANSFORMATIONS SEBASTIAN, ROSS, BEATH, MOCKER, MOLONEY, AND FONSTAD – SEPTEMBER 2017 Figure 1 Elements of Digital Transformation at a Big Old Company 15 of 17

HOW BIG OLD COMPANIES NAVIGATE DIGITAL TRANSFORMATIONS SEBASTIAN, ROSS, BEATH, MOCKER, MOLONEY, AND FONSTAD – SEPTEMBER 2017 Elements of Successful Transformation Two Strategies Executing a Strategy Accommodating Both Operations and Digital Services Impact of Digital Transformation on the IT Unit Recommendations Concluding Comments 16 of 17

HOW BIG OLD COMPANIES NAVIGATE DIGITAL TRANSFORMATIONS SEBASTIAN, ROSS, BEATH, MOCKER, MOLONEY, AND FONSTAD – SEPTEMBER 2017 Concluding Comments §SMACIT opportunities integrate products and services across functional, organizational and geographic boundaries §Big old companies need to embrace new organizational structures and processes §Failure to adopt new technologies and heed the need for digital transformation leaves firms trailing behind 17 of 17