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- Herausgeber: John Wiley & Sons
- Kategorie: Wissenschaft und neue Technologien
- Sprache: Englisch
The Data-Driven Guide for your Digital Transformation Payday In Digital Transformation Payday: Navigate the Hype, Lower the Risks, Increase Return on Investments, Tim Bottke, Senior Strategy Partner at Deloitte and Associate Professor for Strategy and Digital Transformation at SDA Bocconi, a Financial Times/Forbes/Bloomberg Businessweek Top-Five European business school, delivers a provocative, new perspective on digital business transformation--using research to get beyond the hype and uncover its real financial payback. Have you ever asked yourself: "Should I really embark on a digital transformation journey that is likely full of pain, failure, and high cash-outs? One that puts a lot of pressure on our stock price and my nerves? Who will thank me for that? Will there ever be a measurable return on invest for all these technologies that supports positive market value impact?" If so, this book is for you. You'll find unique insights and guidance for managers, executives, board members, and investors as you navigate an immense array of strategic and operational choices, opportunities, and pitfalls. You'll also learn to demystify digital strategy and technology buzzwords, better define the initial focal point and process of your firm's digital transformation, and establish new ways of thinking in terms of value impacts--and how to measure them--right from the start. The book also includes: * A proven framework for defining your next digital transformation effort end to end, and configuring your initiatives for maximum return on investment * Empirical data to help you understand your company's odds of navigating your chosen digital transformation initiatives with financial payback An indispensable resource for business leaders, Digital Transformation Payday will also earn a place in the libraries of entrepreneurs, founders, leaders of established companies, and digital enthusiasts.
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Seitenzahl: 322
Veröffentlichungsjahr: 2022
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Table of Contents
Cover
Praise for Digital
Transformation Payday
Title Page
Copyright
Dedication
Practitioner Foreword
Academic Foreword
Preface
The Quest for Financial Impact: Four Years of Research Behind the Book
Navigate the Hype: How to Read
Digital Transformation Payday
Acknowledgments
PART I: Will Your Digital Transformation (Ever) Pay You Back?
CHAPTER 1: The Bad and Good Reasons for Your Digital Transformation
The Risk of Falling into the Digital‐Hype Trap
The Beneficiaries (Hint: It's Not Necessarily Only You)
CHAPTER 2: Why Digital Transformation Advice Can Get You Off the Payback Track
What You Should Learn from Technology Payback Research
Digital Maturity and Payback Are Not the Same
CHAPTER 3: Digital Transformation Payday
Five Key Elements of Digital Transformation Payback
The Path to Payback Is Never as Linear as You Hope
The Only Econometric Formulas You Need to Understand
PART II: Five Key Elements Drive Digital Transformation Payback
CHAPTER 4: Supply‐Side Catalysts
Digital Technology Does Not Scale Without New Skills and Funding
CHAPTER 5: Demand‐Side and Overarching Catalysts
Demand‐Side Customer Needs
Demand‐Side Workforce Expectations
Demand‐Side Spending Patterns
Overarching: Industry Barriers Are Blurring, Whether You Like It or Not
CHAPTER 6: Reactants/Scope
Core Business Digital Transformations Are Prone to Failure But Must Be Your Final Goal
Digital‐Adjacent Businesses Will Never Be Family Without Proper Reintegration
Digital Frontier Businesses Will Not Behave (the Way You Expect)
CHAPTER 7: Reaction Mechanisms/Process
Waterfall Is Not Dead Yet, But It's About to Be Retired
The Light Side and the Dark Side of Agile Transformation
Hybrid Transformation Is Complex, But You Must Face It as Reality
CHAPTER 8: Outcomes
Replicable References as a Proxy to Measure the So Far Unmeasured
Operational KPIs Are Elusive, But Better Than Nothing
The Journey to Financial KPIs Is Cumbersome But Worthwhile
CHAPTER 9: Design/Strategy
Why Good Strategy Is Now More Important Than Ever
The Sense and Nonsense of Digital Strategy
CHAPTER 10: End‐to‐End
Example 1: Adjacent/Frontier Business Transformation
Example 2: Core Business Transformation
CHAPTER 11: “Smaller” Firm Excursus
PART III: Three Predictors in Your Business That Influence Your Digital Transformation Payday
CHAPTER 12: Some Groundwork for Prediction
The Rifle: Digital Transformation and Market Capitalization
The Shotgun: Digital Transformation and Future Earnings
Some Tiny Steps Toward Causality
Potential Predictors: Recognize Your Starting Point
CHAPTER 13: Predictor Markets
It Only Goes Upward (for Digital Transformation Replicable References)
Not All Sectors Are Created Equal
CHAPTER 14: Predictor Financials
Financials Matter: You Are What You Are
CHAPTER 15: Predictor Communications
Sentiment Elasticity Details: “Always Look at the Bright Side of Life” (Monty Python)
Quantification‐Level Elasticity Details: “Money for Nothing” (Dire Straits) or “One Moment In Time” (Whitney Houston)?
CONCLUSION: How to Keep Your Digital Transformation Paydays ComingHow to Keep Your Digital Transformation Paydays Coming
A Checklist to Speed Up Your Digital Transformation Payday Loop
It Is Not Over: Exponential Technologies Are Next
PART IV: The Science Behind the Book
APPENDIX A: A Lazy Reader's Guide to Key Digital Transformation Definitions from Practice and Science
APPENDIX B: How to Measure Digital Transformation Efforts in Annual Reports with Dictionary‐Based Automated Textual Analysis
APPENDIX C: How to Compile a Unique Financial Database of More than 20,000 Annual Reports
APPENDIX D: How to Start Understanding What the Annual Reports Say About Digital with the Help of Natural Language Processing (NLP)
APPENDIX E: How to Link Digital Transformation and Value with the Residual Income Valuation Model
APPENDIX F: Supplementary Analytics for the Fearless
The Orthoforest Causal Estimate Approach
Indications for Causality
Do Industries Matter?
References
About the Author
Index
End User License Agreement
List of Tables
Chapter 2
TABLE 2.1 Prominent aggregated digital maturity concepts.
Chapter 3
TABLE 3.1 Clusters of digital transformation payday levers.
Chapter 4
TABLE 4.1 Digital technologies overview.
TABLE 4.2 Cloud technology payday drivers.
TABLE 4.3 Digital experience technology payday drivers.
TABLE 4.4 Intelligent automation technology payday drivers.
TABLE 4.5 Analytics technology payday drivers.
TABLE 4.6 Cyber‐ (and data) security technology payday drivers.
TABLE 4.7 Digital reality technology payday drivers.
TABLE 4.8 Blockchain technology payday drivers.
TABLE 4.9 Workforce skills payday drivers.
TABLE 4.10 Funding payday drivers.
Chapter 5
TABLE 5.1 Customer needs payday drivers.
TABLE 5.2 Workforce expectations payday drivers.
TABLE 5.3 Spending patterns payday drivers.
TABLE 5.4 Overarching payday drivers.
Chapter 6
TABLE 6.1 Core business transformation payday drivers.
TABLE 6.2 Adjacent business transformation payday drivers.
TABLE 6.3 Frontier business transformation payday drivers.
Chapter 7
TABLE 7.1 Waterfall transformation payday drivers.
TABLE 7.2 Agile transformation payday drivers.
TABLE 7.3 Hybrid transformation payday drivers.
Chapter 8
TABLE 8.1 Product/outcome clusters depending on their tangibility.
TABLE 8.2 Replicable references advancements and limitations.
TABLE 8.3 Operational KPI advancements and limitations.
TABLE 8.4 Financial KPIs advancements and limitations.
Chapter 10
TABLE 10.1 Example elements of adjacent/frontier business transformation.
TABLE 10.2 Examples of elements of core business transformation.
Chapter 11
TABLE 11.1 Some general implications from a small firm perspective.
Chapter 12
TABLE 12.1 Results of the main statistical models for logMARKETCAP.
TABLE 12.2 Results of the main statistical models for logROA3Y.
TABLE 12.3 Robustness tests for causality indication.
Chapter 13
TABLE 13.1 Interaction results by industry group.
Chapter 14
TABLE 14.1 Orthoforest‐based elasticity results for key variables.
Chapter 15
TABLE 15.1 Orthoforest‐based communications elasticity impact.
Conclusion
TABLE C.1 Digital Transformation Payday “checklist.”
Appendix A
TABLE A.1 Management practice definitions of digital transformation (selecti...
TABLE A.2 Scientific research definitions of Digital Transformation (selecti...
Appendix C
TABLE C.1 Overall sample financial summary statistics.
Appendix D
TABLE D.1 Overall sample textual analysis summary statistics.
Appendix E
TABLE E.1 Residual income model research overview.
TABLE E.2 Model operationalization overview.
Appendix F
TABLE F.1 Refutation sensitivity results.
TABLE F.2 Instrumental variable robustness check for causality indications....
TABLE F.3 Industry category interaction effects.
TABLE F.4 Conditional marginal effects analysis.
List of Illustrations
Chapter 3
FIGURE 3.1 Digital transformation perspectives.
FIGURE 3.2 Digital transformation payday framework.
Chapter 6
FIGURE 6.1 Digital transformation reactants/scope.
Chapter 12
FIGURE 12.1 Density of DIGITALPROXY.
FIGURE 12.2 Linear logMARKETCAP predictive margins with 95% CI.
FIGURE 12.3 Nonparametric logMARKETCAP predictive margins with 95% CI.
Chapter 13
FIGURE 13.1 Noise in DIGITALPROXY over time.
FIGURE 13.2 Development of average DIGITALPROXY over time.
FIGURE 13.3 Differences in DIGITALPROXY by industry group.
Chapter 14
FIGURE 14.1 DIGITALPROXY elasticity TOTALEQUITY.
FIGURE 14.2 DIGITALPROXY elasticity NETINCOME.
FIGURE 14.3 DIGITALPROXY elasticity AOCI.
FIGURE 14.4 DIGITALPROXY elasticity PAYMENTOFDIVIDENDS.
FIGURE 14.5 DIGITALPROXY elasticity DELTAEQUITY.
FIGURE 14.6 DIGITALPROXY elasticity lagged ROA (L1ROA).
FIGURE 14.7 DIGITALPROXY elasticity REVENUEGROWTH.
FIGURE 14.8 DIGITALPROXY elasticity NETDEBT.
FIGURE 14.9 DIGITALPROXY elasticity INVESTEDCAPITALGROWTH.
FIGURE 14.10 DIGITALPROXY elasticity BOOKTOMARKET.
Chapter 15
FIGURE 15.1 DIGITALPROXY elasticity POLARITY.
FIGURE 15.2 DIGITALPROXY elasticity SUBJECTIVITY.
FIGURE 15.3 Quantification‐level elasticities (monetary terms).
FIGURE 15.4 Quantification‐level elasticities (date terms).
Appendix B
FIGURE B.1 Digital transformation (language) dictionary categories.
Appendix C
FIGURE C.1 Portfolio average market capitalization 2012–2021 (in USD).
FIGURE C.2 Portfolio average ROA3Y 2011–2021 (in percent).
Appendix D
FIGURE D.1 Replicable references on three analysis levels.
Appendix F
FIGURE F.1 Sensitivity of adding an unobserved variable on coefficient.
FIGURE F.2 Sensitivity of adding an unobserved variable on significance (
t
)....
FIGURE F.3 Simulation of extremes.
FIGURE F.4 EDM output (ρ – L convergence plot).
Guide
Cover Page
Praise for Digital Transformation Payday
Title Page
Copyright
Dedication
Practitioner Foreword
Academic Foreword
Preface
Acknowledgments
Table of Contents
Begin Reading
Appendix A A Lazy Reader's Guide to Key Digital Transformation Definitions from Practice and Science
Appendix B How to Measure Digital Transformation Efforts in Annual Reports with Dictionary‐Based Automated Textual Analysis
Appendix C How to Compile a Unique Financial Database of More than 20,000 Annual Reports
Appendix D How to Start Understanding What the Annual Reports Say About Digital with the Help of Natural Language Processing (NLP)
Appendix E How to Link Digital Transformation and Value with the Residual Income Valuation Model
Appendix F Supplementary Analytics for the Fearless
References
About the Author
Index
Wiley End User License Agreement
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PRAISE FOR DIGITAL TRANSFORMATION PAYDAY
“Digital technologies can be a great compounding investment for any business to enhance product value and position against competitors. However, given the complexity of digital transformation from a technology perspective, it can be challenging to know how it can create value for the organization strategically. But all businesses must develop a level of mastery of digital technologies to remain relevant in the modern economy. Digital Transformation Payday offers practical advice and valuable evidence as to how and where specific technologies can positively or negatively relate to value. This book is a must‐read for any leader looking to understand how technology investments drive overall enterprise value, based on industry and financial structure, helping guide their digital strategies.”
—Vincent Roche, CEO and Chair of the Board of Directors, Analog Devices
“Bottke wrote nothing less than a straightforward and pragmatic user manual for one of the most vital topics of today's business environment: digital transformation and its returns. Once winning arguments for the success of a company, digital landscapes became nothing more than qualifiers. Follow Bottke's framework and turn it into a winning argument again. The new now goes beyond digitalizing of the physical process. The new now is more about softwaring your company. For those who think that time is running out, start reading, it is worth every minute of it!”
—Bram Schot, AO Board Member, Shell plc; Former CEO, Audi; Professor, Practice for Leadership and Transformation, Bocconi University; Senior Advisor, Carlyle Group & Global Cleantech Capital
“Who needs a payback when you are having fun with your design‐thinking workshop? Many years into digital transformation, it turns out: We all do. But reaching beyond the individual case study or the qualitative framework is hard work. In Digital Transformation Payday, Bottke deep dives into a dataset of over 20,000 observations to get you a full playlist of potential results. Is your digital transformation bound to be ‘Money for Nothing’ or ‘One Moment in Time?’ With Digital Transformation Payday, you can make sure there is still a chair for you when the music stops.”
—Philipp Leutiger, Chief Digital Officer, Holcim
“Bottke substantiates decades of practitioner experience with rigorous academic research. He creates a robust framework that anyone who is in charge of digital transformation at scale will find extremely useful. Part cheat‐sheet, part practitioners' guide, Digital Transformation Payday is rich in actionable insights that, if implemented in combination, significantly de‐risk large‐scale digital transformation programs. Most importantly, however, Bottke frames each leg of the transformation journey into the broader corporate value creation narrative: essential reading for any CXO to explain the value of digital transformation up‐front, and to reap the rewards once the initiatives come to fruition. ”
—Alexander Pavelka, head of Data and Analytics, Red Bull
“Bottke's Digital Transformation Payday offers a unique perspective on the promise and perils of digital transformation, blending practitioner experience and insight with extensive research. Gems abound, including a robust distillation of the payday accelerators and decelerators associated with digital technologies (including cloud, analytics, and cyber), getting agile right, and the importance of having a clear and compelling strategy to effectively aim digital transformation. A must‐read for those who want to improve the odds of realizing the hoped‐for benefits of complex, multidimensional digital transformations.”
—Jonathan Goodman, Global Chair, Monitor Deloitte; Vice Chair and Member of the Board, Deloitte Canada
“Digital Transformation Payday is an intriguing page turner which looks from all angles at the multiple challenges that exist behind the move to digital. Bottke spells out not only the accelerators of the transformation journey but also the numerous decelerators—in a thought‐provoking framework which can drive your future success and enable many digital transformation paydays yet to come.”
—Joel Fastenberg, CHRO Asia Pacific, a leading Global Financial Services firm
“I've spent quite a long time on digital transformation projects in the last few years. Very often I've had the impression that returns on such investments were taken for granted more than thoughtfully evaluated. ‘What's the real impact on my business if I don't do it?’ is one of the questions I've asked myself and my team many times. Bottke's book is particularly insightful in providing answers to the tough questions an executive would—and should!— typically ask. The pandemic forced all of us to look to our businesses in a completely different way and the real question is no longer ‘Where do we want to go?’ but ‘How do we get there?’ Digital transformation can be complex, especially for those organizations that still operate in silos—because it requires a systemic approach that involves changing mindset, culture, and processes. This book is a really helpful guide for the tricky journey toward an enormous organizational transformation.”
—Walter Susini, Senior Vice President Marketing, The Coca‐Cola Company
“In Digital Transformation Payday, Bottke demonstrates some hard‐learned truths of digital transformation, like the difficulty for high debt/high dividend companies to transform, based on deep, fact‐based, comprehensive research. This is not your typical fluffy ‘let's be digital’ book. Read it to create real value with digital, not to play around.”
—Jaime Rodriguez‐Ramos, Operating Director, I‐Squared Capital
TIM BOTTKE
DIGITAL TRANSFORMATION PAYDAY
NAVIGATE THE HYPE LOWER THE RISKS INCREASE RETURN ON INVESTMENTS
Copyright © 2023 by John Wiley & Sons, Inc. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
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Library of Congress Cataloging‐in‐Publication Data
Names: Bottke, Tim, author.
Title: Digital transformation payday : navigate the hype, lower the risks, increase return on investments / Tim Bottke.
Description: Hoboken, New Jersey : Wiley, [2023] | Includes index.
Identifiers: LCCN 2022029468 (print) | LCCN 2022029469 (ebook) | ISBN 9781119894179 (hardback) | ISBN 9781119894193 (adobe pdf) | ISBN 9781119894186 (epub)
Subjects: LCSH: Organizational change. | Management—Technological innovations. | Information technology—Management.
Classification: LCC HD58.8 .B658 2023 (print) | LCC HD58.8 (ebook) | DDC 658.4/06—dc23/eng/20220711
LC record available at https://lccn.loc.gov/2022029468
LC ebook record available at https://lccn.loc.gov/2022029469
Cover Design: Wiley
Cover Image: © Yuravector/Shutterstock
To my wife, Miriam, and our daughter, Laura. You matter more than anything else.
Practitioner Foreword
We often say that in an increasingly digital society, there's no such thing as an “analog transformation.” Every significant business endeavor involves digital technologies. CEOs and boards wrestle with how to grow and thrive in a world that daily sees more technological innovation, more data, more connectivity, more automation, and more fusion between digital and physical realities. In this context, every business transformation is a digital transformation. Moreover, every single CEO and their board must understand how to create and sustain value from digital investments that advance their business ambitions. But how do you manage what you can't measure? Problematically for CEOs and their teams, the connection between digital investments and enterprise value remains fuzzy at best. This is why Tim's Digital Transformation Payday research and writing is essential work at a consequential moment for business.
So, here we are. A global economy that is absorbing and being propelled by more and more digitalization every day. CEOs, C‐suites, and boards that are investing significant time and capital on transformative digital programs to adapt their companies to this constantly changing economy. And a vast unknown in terms of what efforts actually drive durable growth and advantage. For us as a global management and technology consultancy, these realities were a clear call to action. In early 2021, our firm began a vast research effort to study the track records of global companies, their investments in technology, and the potential impact to enterprise value. That's when we learned of Tim's doctoral research at Bocconi University/SDA Bocconi School of Management. It was a match made in client service heaven—rigorous research and quantitative analysis that stood the scrutiny of academic review combined with perspectives acquired through years of serving clients in the trenches of business. Eureka! A guide to demystify the paths to a digital transformation payday!
Our hope for readers is that you maintain a broad perspective when reading Digital Transformation Payday. Consider not only today's operating environment and the portfolio of technologies already described, but an ongoing development with more pervasive digital innovation and tools that can elevate customer experience, form more agile supply networks, heighten employee engagement, and so forth. We are entering a golden era of possibility and business innovation, and digitalization is a new source of capital to be deployed in this era. But the access to that capital and effective deployment of that capital won't be even. Paydays won't be assumed; they will be earned. Select leaders and companies will seize the capital and perform better than their peers. It's a thrilling time for competition and growth. Enjoy the read and make your payday bountiful.
Rich Nanda, US Strategy & Analytics Leader, DeloitteNicolai Andersen, CEO Consulting Central Europe, Deloitte
Academic Foreword
When Tim approached me to supervise his doctoral dissertation four years ago, my initial reaction was all but enthusiastic: “Another research on digital transformation. Can't stand one more.” These were my first thoughts. In my work as a researcher, I'm usually not excited by topics that represent big managerial hypes, and for sure digital transformation has been—and still is!—one of the most impactful in the past 40 years. I must also admit that I was a bit skeptical about a senior executive of one of the most important global consulting companies, with a longstanding expertise in strategy and technology, who, in my very conventional view, was obviously looking for confirmation to his and his company's beliefs on digital transformation, with a touch of science in it. Then Tim sketched his initial ideas, and I was impressed by his genuine willingness to learn more on such an enormous phenomenon, candidly admitting that his long‐term expertise as consultant had not yet provided him with the possibility to answer some big questions that his clients posited. My original reaction turned into: “Let's make it a joint learning journey.” In hindsight, this was exactly what happened. The outcome was an outstanding doctoral research developed with a practitioner mind.
The book you now hold in your hands heavily draws upon the original research and represents a truly insightful intellectual and practical contribution for a number of reasons. It advances a novel perspective on the topic, puts it in context so that readers can feel it is relevant to them, and adopts an elaborated attention‐catching narrative that makes the reading pleasant and intriguing.
As for the novelty, Tim's effort combines solid scientific method with business acumen in providing the answer to the fundamental question to which every executive and entrepreneur embracing a digital transformation path should respond: Is it really worth the investment?
Now, the smart answer to most managerial issues cannot be but: it depends! However, to make the answer even smarter one must explain on what it depends. And this is exactly what Tim does in this book. With a very innovative approach, designed by analogically associating digital transformation to a chemical reaction, the conceptual framework provided in the following pages identifies a broad set of interconnected elements that makes the value of the investment contingent on a number of external (context) and internal (organizational) factors. Therefore, readers have the opportunity to match the characteristics of their own organizations with those factors and gain insights on how to turn the potential of digital transformation they are designing or managing into financial value.
One effect of the digital revolution is that people are getting used to reading shorter and more scattered pieces. Fragmentation seems to be a value of our times. Consequently, a book appears as an anachronistic object, and reading a full book is an unusual activity for the hustle and bustle of today's lives—even more if it is not a fiction but rather a management one! I was the first reader of the original research content of this book, and now that I read it once more in its final form as a managerial book, I have no fear in saying that the reading is completely rewarding. If one compares this book with the many others devoted to the same topic, the reading experience is completely different: a bold point of view instead of vague slogans, complexity made simple instead of simplicity made complex, managerial insights instead of ready‐but‐impossible‐to‐implement recipes. An amazing example of how good research can be the best engine for managerial insights.
For this reason, I'm sure the reader will appreciate each part of it, thereby earning a fine‐grained map of the uneven territory of the value of digital transformation.
Gabriele TroiloSenior professor and associate dean at SDA Bocconi School of Management, associate professor of marketing at Università Bocconi
Preface
The Quest for Financial Impact: Four Years of Research Behind the Book
The original idea to write this book came to me four years ago in a private conversation with one of my clients, the CEO of a leading listed company. Thanks to a longtime trusted advisory relationship he asked me a very tricky question: “Tim, you know my contract with this company ends in two years and for me this is just a platform to move on to a bigger task. Tell me, am I not better off spending a few millions on a digital incubator, investing in one or the other cool start‐up, starting to wear jeans and trainers and ‘digital wash’ my annual report and internal communications, instead of doing what we both know needs to be done—investing half a billion or more to transform my outdated legacy backend over the next five to 10 years to truly differentiate in the market and make my company more resilient for what is yet to come? On a journey likely to be full of pain, failures, and high cash‐outs putting a lot of pressure on our stock price and my nerves while I am still here? Who will thank me for that? Will there be a measurable return on invest and positive stock price impact?”
I should not admit it now as a typical strategy consultant, but I had no answer—at least not one with the necessary facts behind me. This I was not willing to accept. So, I started searching, but still could not find it. I talked to experts in my firm and beyond in my network, and I tried to read every piece of practitioner advice out there. Believe me, there is much more than you can digest. Literally hundreds of books, articles, and presentations on digital transformation. Most are terrible and repetitive or self‐refencing, but there are also quite a few good ones. So, in the end, in this complex digital world, where you cannot afford to miss a single great idea, I decided to read most of them to make my own experiences. If you would do the same, I am sure you would share my disappointment, as most of them have one of three major shortcomings.
First, there are many inspiring ideas out there but the advice is mostly based on subjective experience, interviews, and conceptual thinking (Brynjolfsson and McAfee 2014; Gale and Aarons 2017; Mazzone 2014; Raskino and Waller 2015; Rogers 2016; Schallmo et al. 2017) with some traits of an almost religious common belief system. For the followers of this system, recent and soon expected disruptive technological advancements generate significant challenges and opportunities that need to be urgently dealt with. In this declared “Digital Revolution” (Rogers 2016), “Second Machine Age” (Brynjolfsson and McAfee 2014), “4th Industrial Revolution” (Schwab 2017) or “5th Information Revolution” (Nazarov, Fitina, and Juraeva 2019) traditional management practices are supposed to no longer suffice to thrive or even survive (Gale and Aarons 2017; Mazzone 2014; Raskino and Waller 2015). Not surprisingly, all authors immediately propose predominantly prescriptive playbooks to achieve digital leadership. They are often also providing many interesting ideas to help differentiate from the numerous companies that fail doing so (Andal‐Ancion, Cartwright, and Yip 2003; Bock et al. 2017; Charan 2016; Davenport and Westerman 2018; Gartner 2018; Kane et al. 2017; Rogers 2016).
Second, and potentially as critical as a shortcoming, the digital transformation recipes are typically inspired by famous digital‐born companies, singular transformation examples, and successful digital platform strategies (Bughin and Catlin 2017; Rogers 2016). If ever focusing on the larger bulk of established corporates, they leverage anecdotal case examples and anonymous surveys with subjective company responses (Kane 2016; Kane et al. 2017, 2018), which provide great qualitative insights but obviously also face many admitted limitations (Kane 2019). Opposing concerns that, without a specific context understanding, the digital transformation journey should not be universally recommended for every firm in any context, industry, or size are far and few between (Andriole 2017; Davenport and Westerman 2018).
Third, even though the “planned digital shock to what may be a reasonably functioning system” (Andriole 2017, p. 20) is considered to be “no […] sure salvation” (Davenport and Westerman 2018, p. 3), there seems to be almost no focus on proven financial outcomes for corporates (or any other companies) with the exception of the analysis on EBIT and profit margins by Westerman (Westerman et al. 2014). Quite the opposite; some authors even proclaim that traditional value metrics do not make much sense (Gale and Aarons 2017).
Therefore, and further amplified by the digital transformation surge due to COVID‐19, it became very clear to me that there is an urgent business need to develop a more objective, scientifically supported view of digital transformation payback. We needed a new method to navigate the hype, lower the risks of falling into the digital hype trap, and increase return on investments beyond the prescriptions of managerial books and practitioner journals. I thus turned to academia and joined a high‐ranked global business school as a researcher to gain access to leading‐edge academic know‐how. With some shock, I quickly realized that science also has so far put inadequate prominence on the digital transformation theme. The few available publications provide only very limited answers. There is little to find of any use other than some initial tries of empirical value/performance analysis, and, therefore, the worry about a “digital paradox, i.e. being unable to capture value from […] digital investments” (Parida, Sjödin, and Reim 2019, p. 14) remains.
In addition, given the turbulent history of multidisciplinary research on technology/IT/IS value impact for capital‐market‐listed companies, nicely summarized by Kohli and Grover (Kohli and Grover 2008), astonishingly little transfer work has been conducted to reach a similar level of understanding for digital transformation value. The same is regrettably true for the findings of innovation value research (Brockhoff 1999; Salomo, Talke, and Strecker 2008; Strecker 2009; Vartanian 2003) and recent corporate finance research (Damodaran 2013, 2017). Only in few cases do researchers provide some depth and positive results, but, rather, focus on subtopics like observable digital strategy and innovation (Beutel 2018; Mani, Nandkumar, and Bharadwaj 2018) or economy‐level entrepreneurship impacts (Galindo‐Martín, Castaño‐Martínez, and Méndez‐Picazo 2019). Others apply qualitative text analysis of statements on digital transformation in voluntary and obligatory reporting (Kawohl and Hupel 2018) and then stop there, or focus on text‐analysis‐based subjective digital maturities (Zomer, Neely, and Martinez 2018) as a baseline. Except for some recent work linking text analysis and analyst recommendations (Hossnofsky and Junge 2019), and early‐stage analysis looking deeper into the firm value and performance implications of non‐technology companies investing in digital technologies (Chen and Srinivasan 2019), not once was a broader, end‐to‐end view of the digital transformation process and its value impact found.
So I had no choice; I needed to embark on a journey by myself to solve this puzzle. To provide answers which, years later, hopefully my client still would want to hear, now that he has moved on and is—no surprise—facing the same question only six times bigger. Based on the focus of my experience and interests, I put my emphasis on the value implications for large‐capital market‐listed incumbent firms with a sufficient size and history to assume a transversal transformation rather than greenfield digital start‐ups or smaller firms. Nevertheless, for this book, I will also discuss implications for smaller companies in a small excursus on this topic in Part II of this book.
I developed a more objective, scientific understanding of digital transformation and its (shareholder) value impact. The main contribution of the research behind this book was the first‐ever combination of a structured transversal digital transformation framework with an in‐depth empirical analysis of financial impact implications enhanced by a unique, Natural Language Processing (NLP) supported dataset (> 20,000 observations) of large, listed corporates. Good news for you: As you will be able to see later, based on this approach, some advanced statistical analysis, and causal machine learning, there are means to better predict the likelihood for a statistically significant market value payday for your digital transformation efforts, depending on the context of your company.
Navigate the Hype: How to Read Digital Transformation Payday
Obviously, you can read only parts of this book based on which topics interest you the most (the chapter titles try to tell you what's inside). Still, I believe you will benefit much more if you follow it in sequential order. Like digital transformation, this book is an end‐to‐end process where every element needs to have its place. However, there is one thing you must be aware of when doing so. What you will not find in this book are explicit company names when describing the practical examples used to illustrate the ideas. This is for a good reason. The payback mechanisms of digital transformation are one of the best‐kept secrets, and the likelihood of reading the true story, when this is based on externally sharable information, is close to zero or way behind the fact. Therefore, this book takes a different route and combines up‐to‐date hard data of what is publicly reported in thousands of annual reports over the past 10 years with a few deep but fully sanitized real‐life experiences. Furthermore, you must be aware that this book was developed with the ambition to be scientifically sound (in the end it is based on almost four years of doctoral research). This is meant to end the times of unreferenced rephrasing in digital transformation and implies that there will always be sources and no faked originality by renaming where others before me have already laid the basis in meaningful thoughts.
This book is structured in three parts, 15 chapters, and a series of appendices:
In Part I, Chapter 1 serves as an introduction. Chapter 2 will give you more background on the seminal research on technology, IT, innovation, and corporate finance, which, for all the wrong reasons, is so far not reflected in current digital transformation practice. It also argues what your benefits of undoing this mistake are and provides initial learnings of relevance for your transformation programs. We will then dive much deeper into a key and heavily advertised methodology in the market, namely, the numerous concepts of “digital maturity.” This section is meant to help you to de‐mask this widely misused tool and all its related indexes, benchmarks, and assessments. Chapter 3 introduces the approach you have been waiting for, digital transformation payday, a new five‐element framework enabling you to manage your digital transformation toward accelerated payback by always clearly understanding the complexities of digital transformation benefits and associated cost.
Part II explains the digital transformation payday framework in more detail in eight chapters. Chapters 4 and 5 elaborate on the complex field of supply‐ and demand‐side digital transformation catalysts, which must be understood far beyond digital technologies. Chapter 6 raises the issue of transformation scope and the ultimate objective of transforming your core business as a key success factor. Chapter 7 demystifies agile as a universal tool for any digital transformation process and introduces hybrid as a potential solution to mitigate the downsides of wrongly implemented agile approaches. Chapter 8 continues by explaining the different subjective and objective angles of measuring digital transformation outcomes to better understand payback and return on invest implications. Chapter 9 strongly reemphasizes the importance of a strategy to win for your digital transformation success. Chapter 10 provides two examples of how our framework fits together end‐to‐end and Chapter 11 provides a short excursus on implications for smaller companies.
Part III leverages the extensive empirical research underlying this book to help you better recognize the predictors in your business that influence your digital transformation payday and the efforts required to make a difference as a manager, executive, or investor: In Chapter 12, the general relationship between digital transformation and value is assessed. Chapter 13 covers the implications of the industry context you are operating in. Chapter 14 explores your financial strengths and weaknesses. Chapter 15 covers the sentiments you create in your capital market communication on what you are doing in terms of digital.
The conclusion provides a warning from oversimplification, a high‐level payday checklist to keep your paydays coming and an outlook on exponentials—the upcoming next wave of shifts, which will impact you even more in the future than digital transformation currently does.
